John Smith sold a house he inherited from his parents. He wants to invest the money he received from the sale. Currently, he has two investment opportunities (Project A and Project B). John came to you as a financial advisorto evaluate both projects and provide recommendation on which project he is better to invest in. The current cost of capital in the market is 8% and both projects have 4 years of useful life.

Details of the two projects and their expected cash flow generated over the four-years are as follows:

	Year	Project A	Project B
Initial capital expenditure	0	1,600,000	1,725,000
Cash flow per year	1	640,000	833,000
	2	642,000	729,000
	3	675,000	628,000
	4	851,000	626,000
Resale value of project		125,000	120,000

Required

1. Appraise the two projects using the following methods of investment appraisal:

1. Payback period
2. Net present value
3. Profitability index